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Not Much Help From Fiscal Stimulus

Investors are still expecting a much stronger fiscal policy impulse from Beijing in the second half of 2021 to support a slowing economy. So far this year, however, government fund expenditures have actually fallen by 6.8%. As a result, some catchup will occur in the coming months. But localities are unable to find qualified investment projects that provide sufficient returns, and debt management remains a key policy priority. As a result, full-year fund expenditures by localities will likely miss the budget target of 11.2% growth, and will probably end up at growth rates in the low single digits. More importantly, the structure of local government spending is shifting toward social services rather than infrastructure, reducing support for headline cyclical indicators and GDP growth.

Posted September 9, 2021
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